“Cruel and Unusual” Is the Only Way to Describe It

(This is not to be construed as tax or legal advice. As always, discuss your situation with a qualified advisor.)

If you have an offshore financial account and have the dubious pleasure of being a US taxpayer, you should be familiar with the odious Report of Foreign Bank and Financial Accounts (FBAR) form.

The FBAR is perhaps the most common reporting requirement burden (but certainly not the only one) US taxpayers with international assets have to deal with. These reporting requirements, backed up by truly draconian penalties, are some of the main tools the US government uses in its unrelenting crusade to track and control every penny you earn, spend, and save… a mission that dovetails nicely with the infrastructure of the NSA's surveillance state—but that's a topic for another day.

If you have an aggregate of $10,000 or more in foreign financial accounts at any time during the year, you must file an FBAR (FinCEN Form 114). A foreign financial account is an all-encompassing term. It includes non-US bank and brokerage accounts, as well as foreign mutual funds, accounts with gold storage companies like GoldMoney, and much more.

Also worth mentioning is that foreign real estate and physical gold held in a foreign safe deposit box are not considered financial accounts and are not reportable if they are held directly in your name and not that of a trust, LLC, or other structure.

The $10,000 threshold refers to the total of all your foreign financial accounts. So if on any given day during the year you had, for example, the equivalent of $9,000 in a Singapore bank account and $1,100 in a Hong Kong brokerage account, you would need to file an FBAR.

It's important to note that the $10,000 FBAR threshold is not adjusted for inflation, which causes more and more people to be subject to its reporting requirements due to the continuous devaluation of the dollar.

US taxpayers became burdened with the FBAR after The Bank Secrecy Act was passed in 1970. It's administered by The US Department of the Treasury's Financial Crimes Enforcement Network (FinCen) and enforced by the IRS.

If there were a law named “The Bank Secrecy Act” in Switzerland or elsewhere, it would probably exist to enshrine the protection of its citizens' financial privacy—a good thing. Financial privacy should not be viewed in a negative light, as it's often portrayed by bankrupt governments and their lackeys in the media. The Swiss view financial privacy as a fundamental human right to preserve dignity, akin to medical privacy. I agree with the Swiss.

In the US, however, The Bank Secrecy Act is a misnomer—like pretty much everything to come out of DC. The Bank Secrecy Act does exactly the opposite of what its name implies—i.e., it destroys, rather than protects, the financial privacy of Americans.

The Bank Secrecy Act protects financial privacy just as much as the Iraq Liberation Act brought “freedom” to the Iraqis, or just as much as the Affordable Care Act (Obamacare) makes medical care “affordable.” You get the picture.

The penalties (both civil and criminal) for FBAR noncompliance are what can only be described as a form of cruel and unusual punishment.

The criminal penalties can result in a fine up to $250,000, or five years in prison, or both. If the violation occurs in combination with other violations (like other tax offenses, which it commonly does), the penalties can be increased to $500,000 and/or 10 years in prison. Many real aggressions, like violent crimes, receive far lighter punishment than would someone suffering criminal penalties from FBAR violations.

The civil penalties for noncompliance depend on if the violation was willful or non-willful. A fine for a non-willful violation can amount to $10,000 per account per year—and of course the onus will be on you to prove to the IRS that the violation was non-willful (good luck with that…).

However, if the violations are deemed “willful,” the penalties become truly extreme.

The civil penalty for a willful FBAR violation is the greater of $100,000 or 50% of the value of the account for each account for each year. This can easily add up to hundreds of thousands, if not millions of dollars, and several times the value of the foreign account itself.

Just like a great white shark that smells blood of a nearby seal, don't expect a bankrupt government to show any mercy.

Consider the case of Mary Estelle Curran, a 79-year-old widow who faced six years in prison and over $20 million in fines. Curran inherited a number of offshore accounts worth around $40 million from her husband after he passed away and was allegedly unaware of how to properly file the required FBAR forms.

I don't know how any decent human being could look at themselves in the mirror again after helping to put away an old widow—or anyone for that matter—for a make-believe “crime” like not filing an FBAR. If throwing an elderly widow in a cage for six years for not properly filling out a government form is not cruel and unusual punishment, then the phrase has no meaning.

I am of course not recommending that people skirt the law—that would be dangerously foolish in the extreme. On the contrary, I highly recommend that you fully comply with all applicable laws—and seek the consul of a tax professional to make sure that you dot all the i's and cross all the t's.

Fortunately, Curran did not end up serving any time in prison. Lucky for her, the judge had a shred of human decency and let the 79-year-old woman free… after she paid a $22 million penalty.

The example of Mary Estelle Curran is a testament to how high the stakes are and how desperate the US government has become. If something similar were to happen in a country like China or Russia, you can be sure the US government and mainstream media would be throwing a “human rights” hissy fit.

But it's not just elderly widows who are in the crosshairs of the increasingly bankrupt US government—it's all US taxpayers, naturally.

It's particularly alarming for those who are dual citizens living in other countries and don't have any ties to the US. Let's say for example John is a successful doctor who lives and works in Canada. John was born in the US, but permanently moved to Canada when he was 3 years old. John has never moved or even come back to the US since then. Due to a system of citizenship-based taxation (more on that here) John still is required to file and pay taxes like any US citizen, even though he hasn't been in the US since he was a toddler. Since Canadian taxes are often higher than American taxes, John does not owe any US taxes; however, this does not absolve John from filing an FBAR. John is required to report all of his Canadian financial accounts, including his retirement savings, every year on the FBAR. With the penalties described above, there is a serious possibility that John's entire life savings (and much more) could be wiped and that he could spend years in jail simply from not filing the FBAR form—even if he owed no US taxes in the first place.

There are many thousands or millions of people just like John around the world, the vast majority of whom probably have no idea that they even have any such an obligation to report their day-to-day savings, checking, retirement, or other financial accounts on an FBAR… or the extreme penalties that hang over their head like the sword of Damocles for noncompliance.

Partially acknowledging the issue, the IRS instituted the Offshore Voluntary Disclosure Program (OVDP), which can reduce some of the penalties. But you must come clean before the IRS finds you, and even if you do, there's no guarantee that you will be accepted into the program. In fact, there are numerous instances where people have been accepted into the OVDP only to later be retroactively declined and then subjected to the full penalties.

The root of this injustice is the system of citizenship-based taxation, which has created hordes of new “criminals” out of whole cloth. The US is the only country in the world to effectively practice such a system.

But don't let the burdens or potential penalties scare you away from internationalization—that's exactly what the bad guys want: for you and your savings to remain within their reach. If you consult with a tax professional and comply with all of your obligations, you should have nothing to worry about.

The roadblocks the US government puts up to try to dissuade people from internationalization are a clue to how desperate and bankrupt it really is. Taken together, it's really a form of de facto capital controls.

It should have the opposite effect on you—namely, you should be emboldened to act to protect yourself before the window of opportunity fully shuts. You do not want to be like a sheep that has been penned in for a shearing—or a bail-in.

Dealing with citizenship-based taxation is an unfortunate fact of life for Americans.

And it's not likely to change in the foreseeable future. In fact, I would bet that the burdens will actually increase as the US government becomes more financially desperate. Which is a significant incentive to act sooner than later… or before it is too late altogether.

However unpleasant this reality is, it does not negate the need to internationalize.

Quite the contrary.

It is far better to deal with the burdens associated with internationalization than to leave your savings in range of a desperate government's wrecking ball.

The idea is to create your own personal insurance policy to immunize yourself from the common, destructive measures of a desperate government. This is absolutely crucial given the state of the world we live in today. Doug Casey has said over and over that spreading your political risk beyond one jurisdiction is the single most important thing he can recommend.

Fortunately, there are still many legal strategies available to you, including some that you can do from your own living room. You'll find the latest information on the best of these proven strategies in our Going Global publication. It's a comprehensive guide packed with actionable advice from renowned experts in international gold storage… opening foreign bank and brokerage accounts… moving your IRA offshore… investing in foreign real estate and currencies… the best second passports to obtain… and much, much more. Simply put, there's no better resource available on international diversification than Going Global.